Final answer:
Pre-paid amounts from customers are recorded as a liability, not revenue, upon receipt. They become recognized as revenue when the goods or services are provided, in accordance with the revenue recognition principle.
Step-by-step explanation:
Pre-paid amounts received from customers are not treated as revenue at the time of receipt because they have not yet been earned. According to the revenue recognition principle, revenue is only recognized when the service is performed or the goods are delivered to the customer. This means that when a company receives a pre-payment, it is recorded as a liability on the balance sheet in the form of deferred revenue or unearned revenue. Once the company fulfills its obligation to deliver the goods or services, the liability is then recognized as revenue on the income statement over the period the goods or services are provided.